Pub. 18 2021 Issue 2

16 jump at 22.3%. San Diego and Seattle followed close behind, with respective jumps of 21.6% and 20.2%. In the 20-city national price index, even at the bottom of the list, the jump in prices is still dramatic, with Chicago coming in at the bottom at a still-high 9.9%. A rise in home prices can be caused by many factors, and experts have pinpointed several during the current surge. The consensus is that price surges occurred over the last year due to record-low mortgage rates, high buyer demand, and, most glaringly, a limited supply of homes. According to a June article in Business Insider, citing a recent report from the National Association of Realtors (NAR), “decades of chronic underbuilding left the U.S. housing market with a colossal gap between consumer demand and nationwide supply. Home sales surged to a breakneck pace after the pandemic, and the market is now under immense pressure from a lack of available units. Inventory sits near record lows, and efforts to shore up supply have been curtailed by soaring materials costs and lot shortages.” The article continues, “Countering the shortage requires a ‘once-in-a- generation response,’ the Rosen Consulting Group said in the report. Inadequate home construction over the past 20 years has left the market with an underbuilding gap of at least 5.5 million homes, it said. Contractors built 1.23 million new homes each year on average from 2001 to 2020. That’s down from the average annual pace of 1.5 million new homes from 1968 to 2000. The 5.5 million-home hole even includes the mid-2000s construction boom, which saw overwhelming home demand drive an equally strong surge in homebuilding.” Neither the article nor the NAR study is overly optimistic about the housing shortage being solved in the near future. “Accounting for other dynamics in the housing market paints an even bleaker picture. Once losses of existing homes and underproduction relative to household formation are measured, the total supply-demand gap over the last two decades swells to 6.8 million units, according to the report. The deficit has stripped Americans of affordable homeownership, and the likely obsolescence of available homes in coming years risks n U.S. HOUSING MARKET continued from page 15 exacerbating the already dire situation. Builders can still solve the problem, but the report suggests it will take a herculean effort over the next decade. Residential construction would need to accelerate to an annual pace of more than 2 million units per year. That rate would represent a 60% jump from the annual pace of roughly 1.3 million units in 2020. Data released recently signals contractors are far from reaching such a goal. Housing starts rose 3.6% in May to an annualized rate of 1.57 million units. While the data does show improvement from April, it still sits below highs seen earlier in the year and missed the median estimate for a 3.9% gain. Building permits – a proxy for future residential construction – slid to an annual rate of 1.68 million, the lowest level since October 2020 and the number of single-family units authorized but not yet under construction rose to the highest level since 2006. Taken together, the census bureau data depicts a market that’s struggling amid supply bottlenecks to shore up much-needed housing supply.” The lack of supply is key to understanding how this current housing bubble differs from the 2008 housing bubble and subsequent crisis. In 2008, much of the housing crisis was caused by an increase in demand for mortgages, fueled by changes in underwriting standards and exotic mortgages, which allowed more people to buy homes, many of whom could not afford it. In 2021, the opposite problem exists, in that there aren’t enough homes for sale. As David Dayen writes in The American Prospect, “After the (2008) housing bubble burst, homebuilders grew extremely wary of returning to a business that had imploded so spectacularly. For the first two years after the crisis, housing starts remained below any point in the previous 40 years, and even when they rebounded, as later as the beginning of 2020, they remained at a middling level. The early months of the pandemic further cratered new home construction, and worse, set expectations for sales of components like lumber artificially low. When homebuyers did come back seeking mortgages, there just wasn’t enough lumber to physically build the homes. In the last month, unbuilt homes that have been sold but not constructed have risen by 16%. With homebuilders competing